We’re now in mid-January and I’m sure you’ve set goals for your innkeeping business this year. I’m hoping that one of them is to plan out your booking promotions. I recommend creating a quarterly booking promotion plan so that you can see at a glance when your major booking promotions will be implemented. Then you can back track to determine when to send out announcements and reminders and you’re not scrambling to get an email out at the last minute.
Before you send any emails, purchase any ads, or post to social media, you first must determine what you want to accomplish with your booking promotion. Of course you want to put heads in beds, but the financial goals of the promotion could change based on the time of year that you’re running it.
For example, if you’re open all year and you’re planning a promotion for the slow season in the winter, you’re already incurring the costs of keeping the lights on and paying for staff so you only need to build in the incremental costs of the promotion itself to determine your profit.
If you’re not open all year, and you’re thinking of extending your season into the winter months, now you have to add the costs of keeping the inn open to your promotion calcualations in order to decide what room rate to charge to make it profitable. That will impact the type of promotion you decide to offer as well as the price point for the room rate. It means you will probably need to generate more revenue than the inn that is already open all year round in order to be profitable.
Where do you start?
If you’ve been in business for a while, you should be keeping track of some key measurements: Annual Revenue, Occupancy Rate, Average Daily Rate (ADR), and Revenue per available room (RevPar).
For each booking promotion you decide to offer, you will want to have a goal for how the promotion will impact each of those key measurements. Every promotion should have a revenue goal, that is, how much incremental revenue you plan to bring in from the promotion. Depending on the promotion type and time of year, you will probably have a goal to increase your annual or seasonal occupancy rate, ADR, and RevPAr.
If you haven’t been keeping track of your key measurements and you need a place to start, I like to use industry benchmarks. It’s a great way to see how your inn stacks up to other B&B’s. The Professional Association of Innkeepers International (PAII) periodically publishes the results of a member survey which asks innkeepers to share their financials. I’ve put together the chart below using the statistics from the latest PAII survey from 2013.
The chart shows industry medians. For example, median total revenue for a small inn of four rooms or less was $42,000. That means that half of the inns surveyed had more than $42K in revenue and half of the inns surveyed had revenue of less than $42K. I like looking at the medians rather than a simple average because if you have an inn with unusually high revenue or unusually low revenue, they will skew the average so that it doesn’t show a realistic picture.
Here’s a handy calculator to determine your Average Daily Rate(ADR)
The next chart shows how to calculate the annual RevPar.
Note that the RevPar calculation uses 365 as the number of days your rooms are available so it doesn’t take into account if your inn is only open seasonally.
Thinking about your booking promotion goals ahead of time does require some work, however it will pay off in peace of mind and comfort that your booking promotion will actually make you money rather than cost you.
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